THE IMPACT OF COMMISSIONS ON PRICES AND SERVICE QUALITY FOR HOME AND AUTOMOBILE INSURANCE

THE IMPACT OF COMMISSIONS ON PRICES AND SERVICE QUALITY FOR HOME AND AUTOMOBILE INSURANCE A Report by the Consumer Federation of America February 24, 2005 J. Robert Hunter Director of Insurance Consumer Federation of America 1424 16th Street, NW Suite 604 202-387-6121 www.consumerfed.org

BACKGROUND In the wake of ongoing investigations by New York Attorney General Elliot Spitzer of kickbacks, bid-rigging and improper steering in the commercial insurance industry, the Consumer Federation of America (CFA) undertook a study of contingent commissions in personal lines of insurance to determine if consumers and small businesses might encounter similar practices. That report, Contingent Insurance Commissions: Implications for Consumers, was released on January 26, 2005. 1 In that report, CFA found the same potential for conflicts-of-interest in payments made by insurers to the sellers of personal lines of insurance that Spitzer has uncovered in commercial insurance. CFA concluded that these arrangements could drive up rates or lead to unscrupulous claims practices. This study examines the impact of all commissions, including regular and contingent commissions, on rates and service quality in personal lines of insurance. The goal is to examine whether higher commissions lead to increased prices for consumers and, if so, whether service quality also rises because of the additional cost. Insurance companies use producers to sell their policies to small businesses and to individual consumers. The term refers to all persons who produce insurance business for an insurer: agents, brokers and others. Each has a different cost structure. The different varieties of producers include: Independent insurance agents represent more than one company. They are not consumers agents but are under contract to insurance companies. 2 They could be influenced by contingent commissions to steer business toward one insurer or another. In personal auto and homeowners insurance, agent-based insurers cover about 40 percent of the market. Many consumers have been misled into thinking that independent agents represent their interests and not those of the insurance company. Insurers and agents aggressively promote this perception in their advertising, often not making it clear that the agent actually represents the insurer. For example, Nationwide Insurance famously advertises that its agents are on your side. Travelers says in its Yellow Page advertisements that they have local independent agents working for you. The trade association for independent agents, the Independent Insurance Agents and Brokers of America, claims that their agents are your agent who is your consultant a value 1 See: http://www.consumerfed.org/contingent_commissions_study.pdf 2 Some attorneys have advised us that independent agents may not be clearly agents of insurers because agency contracts may grant very little authority to these salespersons. If this is true, these agents would then have fiduciary responsibilities to their clients. To date, CFA has taken no position on this legal question. 1

hunter who looks after your pocketbook serving you is your independent agent s most important concern. 3 Captive agents are agents of only one insurer. State Farm and Allstate use this system. These agents cover about 25 percent of the auto and home insurance market. Brokers directly represent consumers. However, this arrangement is relatively rare for individual buyers of insurance. Even those who advertise as personal lines brokers often offer only high-priced coverage offered through state-mandated assigned risk or FAIR plans, or through non-standard insurance companies. As the Spitzer findings show, even brokers can be swayed by financial conflicts-of-interest. Direct writers are salaried employees of an insurance company. USAA and GEICO are examples of insurers who use this system of distribution. They receive little commission, if any, and rarely, if ever, are paid contingent commissions. Direct writers cover about 35 percent of the home and auto insurance market in America. HOW COMMISSIONS WORK A. Regular commissions are flat percentage amounts that insurers build into the price of all their policies. They are part of the rate that insurers pay any agent or broker for the sale of a particular policy and which the agent or broker receives at the time a policy is sold. No matter which agent or broker a consumer sees, the commission percentage paid by each specific insurer for that policy remains the same. 4 B. Contingency commissions, by contrast, vary depending on the contingency involved, and are added to regular commissions that are paid. Steering commissions are special payments by insurers to sellers of insurance to direct more business to the insurer. Profit-based commissions are paid to agents that sell policies that experience low levels of claims. METHODOLOGY CFA reviewed commission data from the 20 leading writers of insurance for private passenger auto insurance and homeowners insurance. They are listed on Exhibit 1, along with the commissions these insurers paid in 2003. 5 These commissions are total 3 Independent Insurance Agents and Brokers of America website. 4 Recently, CFA has become aware of a few insurers offering agents a choice of commission in which the price of a policy increases or decreases to reflect the commission level the agent chooses. Thus, the same consumer could pay two or three different prices based solely on the commission level the agent chooses. This practice is dangerous for consumers since the consumer is not told that he or she actually qualifies for the lowest price (there is no difference in underwriting here, the sole difference is the commission charged). This is another reason why consumers must ask their agent if the policy the agent is suggesting is the lowest priced policy for which the consumer qualifies. 5 Bests Aggregates and Averages, 2004 Edition. 2

commissions, including both regular (flat percentage, up-front) commissions and commissions paid based on contingencies (see above). Commission amounts range from near zero for some of the insurers to as high as 14 percent for private passenger auto insurance and 25 percent for homeowners insurance. The premium ranking column is based upon Exhibit 3. Exhibit 3 shows sampled rate information for 30 territories (three each from 10 states) for private passenger auto insurance. It also shows sampled rate information for 26 territories (three each from 8 states and 2 from another state) for homeowners insurance. These data were secured from the websites of the indicated states. The states produce information on insurance prices using examples of different types of risks for the purpose of producing comparison shopping rate guides for the citizens of the state. CFA selected states to get a sample from different parts of the nation and to use different size territories (i.e., cities, suburbs and rural territories) and classes of business (e.g., youthful driver, mature driver, pleasure use, drive to work use and so forth) within each state to test the rate levels of each insurer in the survey. Some insurers from among the top 20 writers did not have sufficient information to use based on the sample. We relied on data only if the sample produced at least 10 price readings for the specific insurer. We scored each insurer based on the ranking of the insurer s rate in each sample territory. If the insurer had the lowest rate in the territory, it received -5 points, -3 points for the second lowest rate, and -1 point for the third lowest rate. If the insurer had the highest rate, it received +5 points, +3 points for the second highest and +1 for the third highest. Rates that fell between the three highest and three lowest positions were scored as zero points. Exhibit 2 shows measures of consumer satisfaction for specific insurance companies. The NAIC complaint ratio data is from the National Association of Insurance Commissioners webpage, under Consumer Information Source or CIS. These data are national complaint information and are based on an index system where a complaint ratio of 1.00 is average for the industry for the line of insurance under review. A ratio less than 1.00 is better than average (i.e., fewer complaints) and a result greater than 1.00 is worse than average. The column labeled Consumer Reports Sat Ranking is the consumer satisfaction rankings based upon surveys undertaken by Consumers Union and published in Consumer Reports Magazine. Here, a higher percentage represents greater consumer satisfaction with their insurer. 6 6 Surviving the Hard Market in Homeowners Insurance, Consumer Reports, September 2004. How to Save on Auto Insurance, Consumer Reports, September 1999. These 1999 satisfaction rates for auto insurers are the most recent available. 3

FINDINGS: RATES RELATED TO COMMISSIONS A. Automobile Insurance Each insurer has been given an overall rate index score based on the above methodology. Beginning with insurers with the lowest overall rates, the results are: OVERALL RATE COMPANY COMMISSION INDEX United Services Auto (USAA) 0.80% -2.7 Allstate 11.90% -1.0 Government Employees (GEICO) 0.30% -0.7 Progressive 7.40% -0.6 Liberty Mutual 2.40% -0.6 USAA Casualty 0.60% -0.1 American Family 11.00% 0.7 State Farm Mutual Auto 7.70% 0.8 Nationwide Mutual 10.80% 1.8 Farmers 1.10% 3.6 The average commission for those insurers with personal auto insurance rates below average in this sample is 3.9 percent. The average commission paid by the insurers with above average rates is 7.7 percent. B. Home Insurance OVERALL RATE COMPANY COMMISSION 7 INDEX United Services Auto (USAA) -0.20% -3.1 USAA Casualty -0.10% -0.8 Farmers 1.10% -0.7 Allstate 12.70% 0.2 State Farm Fire and Casualty Co 12.90% 0.5 Liberty Mutual 0.60% 1.0 American Family 14.90% 1.6 Nationwide Mutual 16.10% 1.7 The average commission for those insurers with homeowners insurance rates below average in this sample is 0.3 percent. The average commission paid by the insurers with above average rates is 11.4 percent. 7 A commission that is negative is due to the receipt of commissions from reinsurance companies in most cases. 4

These samples are small and the number of companies reviewed, after eliminating those insurers with fewer than 10 reported rates was small (10 insurers in auto and 8 in homeowners). Therefore, conclusions must be cautiously reported. It is likely that prices go up as the commission cost rises, as one would anticipate. However, this is not always true. Note that there are high commission insurers with low prices in this sample and low commission carriers with high rates as well. It is therefore very important for consumers to carefully shop around when purchasing auto and home insurance. Prices vary widely, usually by at least 50 percent and frequently by 100 percent or more. C. Profits Compared to Commissions In the National Underwriter of February 21, 2005, an important point is made: some of the most profitable companies (those with the lowest combined ratios) show up with the worst expense ratios, mainly as a result of paying out higher commission rates to agents and brokers. An expense ratio is the proportion of losses paid out in claims to the amount of premiums charged. Even by line of insurance, the same pattern can be observed. COMMISSION VS. PROFITS BY LINE OF INSURANCE 8 OPERATING LINE COMMISSION RATIO MED MAL 4.5% 121.3% WORK COMP 6.5% 97.8% GROUP A&H 6.7% 91.2% M/P CROP 8.2% 99.4% PP AUTO LIAB 8.4% 96.8% PP AUTO PHY 8.4% 90.9% OTHER A&H 8.8% 103.0% AIRCRAFT 9.3% 70.2% FIRE 10.5% 75.8% ALLIED LINES 10.6% 77.8% OTHER LIAB 10.6% 100.9% COMM AUTO 11.7% 92.2% PRODUCTS 11.8% 138.9% FIDELITY 12.2% 66.6% HOMEOWNERS 12.9% 94.9% INLAND MAR 13.0% 79.8% COMM A PHY 13.7% 83.5% BOILER 13.8% 66.1% BURGLERY 14.9% 64.8% 8 Source: Aggregates and Averages, A. M. Best & Co., 2004 Edition. 5

CREDIT 15.3% 84.9% CMP-Non-Liability 16.0% 87.6% FARMOWNERS 16.2% 96.4% CMP-Liability 16.4% 106.3% OCEAN MAR 16.6% 98.7% SURETY 25.5% 118.1% CREDIT A&H 34.2% 77.1% ALL LINES 10.3% 93.9% 13 Lines with lowest Commission 96.6% 13 Lines with highest Commission 86.5% 10 Lines with lowest Commission 92.4% 10 Lines with highest Commission 88.4% 5 Lines with lowest Commission 101.3% 5 Lines with highest Commission 99.3% Thus, there is a tendency for profits to rise with commissions in this table. We draw no major conclusion from this other than to note the fact that some of the lines of insurance with high commissions suffer from reverse competition, where the commission is paid often to the entity selecting the insurer. Credit insurance is particularly susceptible to this phenomenon. A strategy to gain market share, unfortunately, can be to lure producers to write insurance by offering higher commissions in the less competitive markets. Consumers should be aware that some agents representing more than one insurer could place the consumer in a higher priced insurer with larger commissions even when the consumer qualifies for a lower price. States do not require agents or brokers to place the applicant into the best policy for the customer. There are no suitability requirements. Consumers must shop knowing this and ask the right questions. FINDINGS: CONSUMER SATISFACTION RELATED TO COMMISSIONS Exhibit 2 displays the results of CFA s research into consumer satisfaction rankings. A. Automobile Insurance For auto insurance, the NAIC complaint rankings compared to commission levels are as follows, with companies that have the lowest level of complaints at the top of the list: OVERALL COMPLAINT COMPANY COMMISSION RANKING Interins Exchange 2.10% 0.20 California State Auto 11.70% 0.21 State Farm Mutual Auto 7.70% 0.26 United Services Auto 0.80% 0.28 6

21st Century 4.90% 0.30 Commerce Insurance 14.30% 0.31 Erie Insurance Exchange 11.20% 0.35 Progressive Northern 7.40% 0.41 Government Employees 0.30% 0.42 GEICO Indemnity 0.40% 0.48 USAA Casualty 0.60% 0.48 Motors Ins 7.40% 0.51 Allstate 11.90% 0.65 Nationwide Mutual 10.80% 0.73 Farmers 1.10% 0.78 American Family 11.00% 0.92 Metropolitan 8.00% 1.16 Progressive 7.40% 2.18 Trinity Universal 10.50% 2.26 Liberty Mutual 2.40% 3.22 The average commission for insurers with complaint ratios under.5 was 5.6 percent. In the range.5 to 1.0, the average commission was 8.4 percent. Over 1.0, the average commission was 7.1 percent. The consumer satisfaction responses from Consumer Reports for auto insurers show the following: OVERALL SATISFACTION COMPANY COMMISSION RANKING United Services Auto 0.80% 94% USAA Casualty 0.60% 92% State Farm Mutual Auto 7.70% 88% Erie Insurance Exchange 11.20% 88% American Family 11.00% 87% Government Employees 0.30% 86% Nationwide Mutual 10.80% 85% California State Auto 11.70% 85% Liberty Mutual 2.40% 84% Allstate 11.90% 83% Farmers 1.10% 83% Metropolitan 8.00% 81% Commerce Insurance 14.30% 81% Insurers scoring a satisfaction index of greater than 85 percent had an average commission of 5.3 percent. Insurers with less than 85 percent had an average commission of 7.5 percent. These figures did not include the two insurers exactly at 85 percent satisfaction. If these two companies are placed with each group, the results are 6.8 percent and 8.6 percent respectively. 7

B. Home Insurance OVERALL COMPLAINT COMPANY COMMISSION RANKING Federal Insurance 20.10% 0.07 Allstate Floridian 13.40% 0.09 State Farm General 12.90% 0.15 United Services Auto -0.20% 0.20 Fireman s Fund 18.50% 0.29 State Farm Fire and Casualty Co 12.90% 0.34 Erie Ins Exchange 15.70% 0.35 USAA Casualty -0.10% 0.38 State Farm Lloyds 13.70% 0.42 Allstate 12.70% 0.70 American Family 14.90% 0.74 Metropolitan 11.10% 0.88 Foremost 25.80% 0.89 Auto-Owners 24.90% 0.99 Mid-Century 1.10% 1.15 Travelers Indem 17.60% 1.45 Travelers 17.60% 2.19 Farmers 1.10% 2.55 Nationwide Mutual 16.10% 2.74 Liberty Mutual 0.60% 96.44 The average commission for insurers with complaint ratios under.5 was 11.9 percent. In the range.5 to 1.0, the average commission was 17.9 percent. Over 1.0, the average commission was 9.0 percent. The consumer satisfaction responses from Consumer Reports for home insurers show the following: OVERALL SATISFACTION COMPANY COMMISSION RANKING Auto-Owners 24.90% 90% United Services Auto -0.20% 88% Erie Ins Exchange 15.70% 84% State Farm Fire and Casualty Co 12.90% 83% State Farm Lloyds 13.70% 83% State Farm General 12.90% 83% American Family 14.90% 81% Allstate 12.70% 78% Nationwide Mutual 16.10% 78% Metropolitan 11.10% 78% Travelers Indem 17.60% 77% Farmers 1.10% 66% 8

Insurers scoring a satisfaction index of greater than 85 percent had an average commission of 12.4 percent. Insurers between 80 percent and 85 percent satisfaction ranking had average commissions of 14.0 percent. For all insurers with satisfaction ranking over 80 percent the average commission was 13.5 percent. Insurers with less than 80 percent had an average commission of 11.7 percent. CONCLUSIONS: Sample sizes are small, so conclusions must be tentative. However, several significant conclusions can be reached: Insurers with lower commissions tend to have lower rates. This is not always true, so consumers must shop carefully. There is no evidence that paying higher commissions to a producer leads to either better service or higher consumer satisfaction. In fact, there appears to be no correlation between the amount of commission paid and the quality of service rendered. As a result, consumers must shop carefully for service quality, as lowcommission insurers can be either good or bad in handling service questions and complaints, as can insurers that receive higher commissions. In less competitive markets, some insurers may attempt to attract market share by offering higher commissions along with higher prices and, often, higher profits for the insurer 9. This practice is particularly prevalent in the sale of credit insurance. United Services Auto (USAA) is a consistently low rate insurer with excellent service. Military personnel and their families who qualify for USAA insurance should be sure to get a quote from USAA. Traditionally State Farm has offered very competitive rates, but now it seems that State Farm is offering rates that are slightly above average. CFA has observed large price hikes during the last few years by State Farm but we are somewhat surprised at this finding, since State Farm has been known to under-price the market for decades. State Farm policyholders may want to shop around now if their rates have significantly increased over the last few years. 9 CFA once helped a sophisticated consumer (the Dean of a law school) get a refund from an insurer that charged him a very high price when he qualified for a much lower one. The agent had received additional commission dollars from this inappropriate transaction. 9

TIPS FOR CONSUMERS: When the author was Texas Insurance Commissioner, the Texas Insurance Department tried an experiment. It brought in 25 auto and 25 home insurance policyholders with their policies. It gave them the Department s shopping guides and a telephone and one hour to read and shop. On average, the auto policyholders saved $115 and the home policyholders saved $85. Overall, the hour of effort was worth $100. The Department announced a $100 Hour program and thousands of Texans called in, many of whom saved significant amounts of money. 1. Shop around! This study found that premium charges tend to rise with commissions, but this is not always true. Consumers should be sure to get quotes from some of the lowest premium insurance companies, including the direct writers of insurance that typically do not pay commissions. (See step 3) 2. Consumers do not have to pay more to get excellent service. Some of the companies with the best service records have low prices and low or even no commissions. It pays to shop among the companies with the lowest prices and the highest consumer satisfaction/lowest complaint ratios. (Step 4 shows how to shop for better service insurers) 3. For information on insurance rates, check state price information guides. Most states have these guides. Typically, consumers can download them from the state s insurance department website. 10 4. For complaint information on insurance companies, check with the National Association of Insurance Commissioners web site. (www.naic.org) 11 5. Beware of going to just one agent or broker for insurance, even if that producer represents several insurance companies. Consumers should be aware that some producers representing more than one insurer could place the consumer in a higher priced insurer with larger commissions even when the 10 These web sites can be found at the home page of the National Association of Insurance Commissioners: www.naic.org. Consumers can click on state insurance web sites found on the upper right hand side of the page. Consumers can then click on their state s insurance department web page. Price guides for home and auto insurance can typically be found under publications. CFA urges consumers to complain to their state insurance department if no such price guide is available. 11 On the left hand side of the home page, consumers should click on Consumer Information Source (CIS). Once on the CIS Home Page, consumers can compare company complaint ratios by typing in the company name and their state of residence. Consumers can then look at complaint information (as well as licensing and financial information) for the insurance company. By clicking on Closed Complaints, a consumer can look at complaint counts by state, by code (the type of complaint lodged against the insurer), by complaint ratio and by trends in complaints. Complaint Ratio information is the most helpful. Consumers can choose the line of insurance they are interested in and the most recent year (2003 or, in late March, 2004). By clicking on create report consumers can see complaint information. The complaint index is an index to the average complaint ratio for the nation for all insurers. An index of 1.00 is average. Less than 1.00 is better than average (signifying a lower level of complaints). Greater than 1.00 means that the level of complaints is worse than average. 10

consumer qualifies for a lower price. States do not require agents or brokers to place the applicant with the best policy for the customer. 6. Ask agents and brokers the right questions: Do you represent me or do you represent the insurance company you are suggesting I use? What commission are you earning as a percentage of the cost of the policy you are suggesting I purchase? Am I receiving the lowest price among all the insurance companies that you represent for which I qualify? What other insurance companies do I qualify for that you represent? What are the prices I would pay at those insurers and what commission would you get with each company? Do you have a contingency commission arrangement with the insurer you are recommending? Please fully explain that arrangement to me. If I have a claim, do you represent me or the insurer in the claim process? Is your compensation in any way related to claims filed by me and other clients of yours? 11

LEADING WRITERS BASED ON 2003 EXPERIENCE EXHIBIT 1 PRIVATE PASSENGER AUTO INSURANCE 2003 Comm Premium RANK COMPANY PPA Liab Ranking 1 State Farm Mutual Auto 7.70% 0.8 2 Allstate 11.90% -1 3 Nationwide Mutual 10.80% 1.8 4 Government Employees 0.30% -0.7 5 Progressive 7.40% -0.6 6 American Family 11.00% 0.7 7 United Services Auto 0.80% -2.7 8 Farmers 1.10% 3.6 9 Liberty Mutual 2.40% -0.6 10 GEICO Indemnity 0.40% 11 Metropolitan 8.00% 12 USAA Casualty 0.60% -0.1 13 Erie Insurance Exchange 11.20% 14 Interins Exchange of the Auto Club(CA Only) 2.10% 15 California State Auto (CA Only) 11.70% 16 Commerce Insurance 14.30% 17 Motors Ins 7.40% 1821st Century (CA only) 4.90% 19 Trinity Universal 10.50% 20 Progressive Northern 7.40% HOMEOWNERS INSURANCE 2003 Comm Premium RANK COMPANY Homeowners Ranking 1 State Farm Fire and Casualty Co 12.90% 0.5 2 Allstate 12.70% 0.2 3 Nationwide Mutual 16.10% 1.7 4 Farmers 1.10% -0.7 5 State Farm Lloyds 13.70% 6 American Family 14.90% 1.6 7 State Farm General 12.90% 8 United Services Auto -0.20% -3.1 9 Federal Insurance 20.10% 10 Metropolitan 11.10% 11 Foremost 25.80% 12 Liberty Mutual 0.60% 1 13 Erie Ins Exchange 15.70% 12

14 Travelers 17.60% 15 USAA Casualty -0.10% -0.8 16 Travelers Indem 17.60% 17 Auto-Owners 24.90% 18 Mid-Century 1.10% 19 Firemans Fund 18.50% 20 Allstate Floridian 13.40% NOTE: For those insurers with at least 10 high/low rates reported in the study, This is the ranking of each insurer. If the insurer scores lowest rate in a sample, it scores -5 points, if 2nd lowest, -3, third, -1, highest rate +5, second highest +3, third highest +1, all other scores receive 0. Source: Best's Aggregates and Averages, 2004 and earlier editions. 13

LEADING WRITERS BASED ON 2003 EXPERIENCE EXHIBIT 2 PRIVATE PASSENGER AUTO INSURANCE NAIC Consumer 2003 Comm COMPLAINT Reports Sat RANK COMPANY PPA Liab RATIO Ranking 1 State Farm Mutual Auto 7.70% 0.26 88% 2 Allstate 11.90% 0.65 83% 3 Nationwide Mutual 10.80% 0.73 85% 4 Government Employees 0.30% 0.42 86% 5 Progressive 7.40% 2.18 6 American Family 11.00% 0.92 87% 7 United Services Auto 0.80% 0.28 94% 8 Farmers 1.10% 0.78 83% 9 Liberty Mutual 2.40% 3.22 84% 10 GEICO Indemnity 0.40% 0.48 11 Metropolitan 8.00% 1.16 81% 12 USAA Casualty 0.60% 0.48 92% 13 Erie Insurance Exchange 11.20% 0.35 88% 14 Interins Exchange of the Auto Club (CA Only) 2.10% 0.2 15 California State Auto (CA Only) 11.70% 0.21 85% 16 Commerce Insurance 14.30% 0.31 81% 17 Motors Ins 7.40% 0.51 1821st Century (CA only) 4.90% 0.3 19 Trinity Universal 10.50% 2.26 20 Progressive Northern 7.40% 0.41 HOMEOWNERS INSURANCE RANK COMPANY NAIC Consumer 2003 Comm COMPLAINT Reports Sat Homeowners RATIO Ranking 1 State Farm Fire and Casualty Co 12.90% 0.34 83% 2 Allstate 12.70% 0.7 78% 3 Nationwide Mutual 16.10% 2.74 78% 4 Farmers 1.10% 2.55 66% 5 State Farm Lloyds 13.70% 0.42 83% 6 American Family 14.90% 0.74 81% 7 State Farm General 12.90% 0.15 83% 8 United Services Auto -0.20% 0.2 88% 9 Federal Insurance 20.10% 0.07 NA 10 Metropolitan 11.10% 0.88 78% 11 Liberty Mutual 0.60% 96.44 NA 12 Foremost 25.80% 0.89 NA 13 Erie Ins Exchange 15.70% 0.35 84% 14 Travelers 17.60% 2.19 NA 15 USAA Casualty -0.10% 0.38 NA 14

16 Travelers Indem 17.60% 1.45 77% 17 Auto-Owners 24.90% 0.99 90% 18 Mid-Century 1.10% 1.15 NA 19 Firemans Fund 18.50% 0.29 NA 20 Allstate Floridian 13.40% 0.09 NA NOTE: All 3 State Farm Companies are rated including all their data. USAA includes data for United Services Automobile Assn. and USAA Casualty combined Travelers includes data for Travelers Indemnity and Travelers Property Casualty combined Sources: Best's Aggregates and Averages, 2004 and earlier editions. Consumer Reports Auto, September 1999 Edition Consumer Reports Homeowners, September 2004 Edition 15

RATE COMPARISONS FOR SELECTED TERRITORIES EXHIBIT 3 Auto Insurance OREGON MARYLAND Leading Writers Portland Pendleton Eugene Baltimore Montgomery Frederick State Farm Mutual Auto 728 457 505 4178 2787 2137 Allstate 510 279 398 20354 8918 6508 Nationwide Mutual 548 358 384 GEICO (Gov't Employees) 4268 2504 2139 Progressive 519 384 412 9873 4938 3549 American Family 482 268 281 USAA (United Services) 551 393 454 2399 1654 1433 Farmers 9218 4073 3033 Liberty Mutual 506 323 356 3131 1565 1256 GEICO (GEICO Indem) 638 415 504 8456 5033 4125 Metropolitan USAA Casualty 569 406 469 2476 1670 1445 Erie Insurance 3629 2716 2164 Interinsurance Exch (CA only) CA State Auto (CA only) Commerce Ins Motors Ins 21st Century Trinity Universal Progressive Northern 524 259 318 HOME Insurance OREGON MARYLAND Leading Writers Coos Bay Portland Baltimore Montgomery Frederick State Farm Fire & Cas 523 493 1124 1444 892 Allstate 321 303 1072 1539 840 Nationwide Ins 471 510 1413 1212 980 Farmers 341 401 974 1130 647 American Family 456 479 State Farm Lloyds State Farm General USAA (United Services) 450 530 872 1120 831 Federal Ins Metropolitan Foremost Liberty Mutual 499 461 1044 1201 794 Erie Insurance Exchange 860 1184 762 Travelers USAA Casualty 495 583 1017 1309 970 Auto-owners Ins Mid-century Ins Fireman's Fund 789 1167 887 Allstate Floridian (FL only) NOTE: OR Auto: MD Auto: Examples vary by state, Married adult couple, 2000 Camry, 5 mi to work Husband drives 2000 Accord 20 mi to work, clean. as shown. for him; she drives 2000 Caravan 10 mi; Wife a 2000 Caravan, 5 mi to work, Clean. Both excellent credit. SOURCES: State clean drivers; 16 yr-old good student son drives. 17 yr old driver. 1 Speed ticket. 100/300/50 full coverage. Insurance Department Websites. OR Homeowners MD Homeowners: 1997 frame house with gas heat, no fireplace, Frame, best protection class, $300,000 liability composite roof, $200,000 replacement cost, $1,000 deductible, $200,000 Baltimore, $450,000 Montgomery $140,000 contents, $1,000 med, $100,000 and $300,000 Frederick. liability, $500 deductible. 16

Auto Insurance FLORIDA NEW YORK Leading Writers Jacksonville Miami Tampa Brooklyn Hempstead Elmira State Farm Mutual Auto 1038 1736 1391 2009 1009 309 Allstate 1497 819 251 Nationwide Mutual 1146 1748 1391 2105 1301 402 GEICO (Gov't Employees) 1086 1822 1284 1173 693 275 Progressive 1072 1632 1510 1533 985 360 American Family USAA (United Services) 848 1465 972 778 603 305 Farmers Liberty Mutual 1196 1829 1413 1482 941 347 GEICO (GEICO Indem) 2034 1133 477 Metropolitan 1529 995 363 USAA Casualty Erie Insurance 1134 742 301 Interinsurance Exch (CA only) CA State Auto (CA only) Commerce Ins Motors Ins 21st Century Trinity Universal Progressive Northern HOME Insurance FLORIDA NEW YORK Leading Writers Jacksonville Miami Tampa Upstate Manhattan Nassau State Farm Fire & Cas 584 942 717 Allstate 610 1144 817 Nationwide Ins No Buyer's guide for HO in FL 751 1078 687 Farmers American Family State Farm Lloyds State Farm General USAA (United Services) 530 842 651 Federal Ins Metropolitan 530 1251 853 Foremost Liberty Mutual not offered 1158 not offered Erie Insurance Exchange Travelers USAA Casualty Auto-owners Ins Mid-century Ins Fireman's Fund Allstate Floridian (FL only) FLORIDA AUTO: NEW YORK AUTO: Required coverage. Retired age 69 person. 40 Yr-old married female, one speeding NEW YORK Homeowners: ticket, 2001 SUV worth $25K, 15K miles annually Full cover with state required liability limits. Estimated average annual premiums. Frame, HO-3. 17

Auto Insurance OHIO CALIFORNIA Leading Writers Cincinnatti Dayton Rest of state Mission Viejo Alpine Merk Central LA State Farm Mutual Auto 455 431 399 1010 994 1480 Allstate 368 316 306 926 653 1734 Nationwide Mutual 1148 806 2442 GEICO (Gov't Employees) 349 402 351 1047 560 1655 Progressive 316 334 207 1132 798 2398 American Family USAA (United Services) 774 567 1199 Farmers 883 1075 NA 924 706 2095 Liberty Mutual 898 686 2487 GEICO (GEICO Indem) Metropolitan 710 588 1436 USAA Casualty 388 357 351 Erie Insurance 437 423 352 Interinsurance Exch (CA only) 782 847 1442 CA State Auto (CA only) 654 Commerce Ins Motors Ins 1006 618 2116 21st Century 966 770 1804 Trinity Universal Progressive Northern HOME Insurance Leading Writers Cincinnatti Dayton Rest of state Mission Viejo Alpine Merk Central LA State Farm Fire & Cas 504 616 610 1069 914 1064 Allstate 328 328 931 1118 977 1080 Nationwide Ins 390 454 NA 525 1149 1552 Farmers 295 415 241 1138 1107 1304 American Family 491 486 648 State Farm Lloyds State Farm General USAA (United Services) 361 372 1084 717 807 991 Federal Ins Metropolitan 985 1242 1849 Foremost 684 831 1251 Liberty Mutual 461 471 666 822 834 1088 Erie Insurance Exchange 357 406 539 Travelers 640 749 814 USAA Casualty 401 413 1204 Auto-owners Ins Mid-century Ins Fireman's Fund 631 796 1003 Allstate Floridian (FL only) OHIO Auto: Married male age 35, wife drives at times, 15K miles a year, clean, '03 Camry 100/300/100, 5 med, $500 deductible OHIO Homeowners: Frame home covered for $95K, $100 K liability $1K medical, $500 deductible CA Auto: Basic Liability only Married couple, clean 12.6-15K miles CA Home: $500 deductible, 16-25 yr old house, $200K cover. 18

Auto Insurance TEXAS KANSAS Leading Writers Bexar Ft Bend Houston Wichita Garden City Kansas City State Farm Mutual Auto 480 430 382 465 502 573 Allstate 377 477 306 422 426 476 Nationwide Mutual 518 516 332 481 477 446 GEICO (Gov't Employees) 358 496 606 502 Progressive 357 431 281 242 259 263 American Family 615 684 670 USAA (United Services) 395 417 279 466 466 485 Farmers 536 636 438 705 850 929 Liberty Mutual 341 376 246 696 723 603 GEICO (GEICO Indem) Metropolitan USAA Casualty 531 531 539 Erie Insurance Interinsurance Exch (CA only) CA State Auto (CA only) Commerce Ins Motors Ins 21st Century Trinity Universal Progressive Northern HOME Insurance Leading Writers Bexar Ft Bend Houston Crawford Shawnee Kansas City State Farm Fire & Cas 954 942 942 Allstate 839 1184 871 3156 3018 3622 Nationwide Ins 1000 1197 1220 Farmers 1516 1649 951 1105 1173 1125 American Family 1753 1239 1715 State Farm Lloyds State Farm General USAA (United Services) 616 909 691 NA 983 990 Federal Ins Metropolitan 1035 1828 910 Foremost 639 639 639 Liberty Mutual 1282 1260 1336 Erie Insurance Exchange Travelers 853 986 716 USAA Casualty 672 991 753 NA 1130 1139 Auto-owners Ins Mid-century Ins Fireman's Fund Allstate Floridian (FL only) TX Auto: Adult male, clean, KS Auto: Preferred risk, $250 ded Coll drive to work; County $100 ded Comp, 55 year old female, '04 Mutual quoted in some instances Home: Frame in urban area Lloyds quoted if available. Impala KS Home: $150K coverage, Protection class 7, frame. 19

Auto Insurance WISCONSIN COLORADO Leading Writers Milwaukee Madison Eau Claire Denver Littleton Ft Collins State Farm Mutual Auto 779 585 638 1234 965 889 Allstate 616 426 457 Nationwide Mutual GEICO (Gov't Employees) 1313 946 891 Progressive 1416 925 879 American Family 805 651 699 1885 1169 1137 USAA (United Services) 766 613 693 1087 897 757 Farmers 1326 749 776 2050 1477 1181 Liberty Mutual GEICO (GEICO Indem) Metropolitan USAA Casualty 1125 928 783 Erie Insurance Interinsurance Exch (CA only) CA State Auto (CA only) Commerce Ins Motors Ins 21st Century Trinity Universal Progressive Northern 734 537 483 HOME Insurance Leading Writers Madison Milwaukee Douglas Denver Pueblo Grd Junction State Farm Fire & Cas 448 762 751 1462 1284 684 Allstate 361 409 459 1349 1652 762 Nationwide Ins 1362 1413 963 Farmers 302 595 471 1404 1518 805 American Family 485 656 526 1190 1318 698 State Farm Lloyds State Farm General USAA (United Services) 1106 1204 509 Federal Ins 1252 1256 816 Metropolitan Foremost Liberty Mutual 1601 1698 890 Erie Insurance Exchange Travelers USAA Casualty 1075 1168 494 Auto-owners Ins 281 378 357 Mid-century Ins Fireman's Fund 1521 1493 1121 Allstate Floridian (FL only) WISC Auto: '01 Neon, age 21 driver single, clean female, 7,500 miles annually CO Auto:21 yr-old single male, drive 50/100/50, UIM, $1K med, $250 ded full cover $200 ded coll, $100 ded Comp WISC Home: 20-yr old Frame house, $150 cover, HO-3, $250 ded, $1,000 med. to work under 10 mi, clean, '02 Taurus, CO Home: $200K cover, $500 ded, $100K Liability, $1,000 med, 10-yr old frame home, dead bolt and smoke alarm, close to hydrant. 20